Dow December: Are More Record Highs a Sure Thing?

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The Dow Jones Industrials (DJINDICES: ^DJI  ) closed November on a mildly disappointing note, just barely failing to set its sixth-straight all-time daily closing high Friday as investors backed off their early optimism over early holiday-shopping results that showed strength in the overall economy. But many traders who pay attention to seasonal factors have noted that historically, the Dow has often posted strong gains in December. With the Dow at record highs, even investors who don't follow seasonal indicators are curious to see whether that trend will continue this year.

Looking at the Dow as a whole, it's easy to understand why those who pay attention to seasonal patterns are enthusiastic about the average's prospects. In each of the past four years, December has been a positive month for the Dow, with the biggest gains of about 5% coming in 2010. Moreover, even in the midst of the financial crisis in late 2008, the Dow only lost about 50 points in December, with much worse losses having come earlier in the fall and later in the succeeding winter.

Going back further, the December Dow phenomenon was less reliable but often produced sharper gains when it worked. The Dow fell during December in 2007 and 2005, and 2002 produced its worst showing in the past 15 years, falling 6%. Yet Decembers also produced strong gains in many years, including 6% to 7% gains in 1999 and 2003.

Yet when you look at the individual stocks that will have the most influence on the Dow going forward, the seasonal impact is somewhat less clear. Visa (NYSE: V  ) , the highest-priced Dow component currently, saw positive results in three of the past four years before it become a member of the Dow, but it fell in 2010 despite the overall market's big push higher. IBM (NYSE: IBM  ) has more consistently followed the Dow's overall trend, but even it fell sharply in 2009 despite the Dow's overall gains. And for Dow newcomer Goldman Sachs (NYSE: GS  ) , losses in 2011 bucked the market's gains, and it also lost ground in 2004 and 2007 to a greater extent that the overall market did.

Clearly, the stock market has strong momentum propelling it higher right now, and that argues in favor of the Dow following its seasonal pattern this year. But nothing about stocks is a sure thing, and it's just as important as ever for long-term investors not to get caught up too much in short-term factors and instead focus their attention on finding the companies with the best potential to produce solid results both this December and in the years and decades to come.

The next best thing to a sure thing
The stock market is never 100% reliable, but many investors have learned firsthand that dividend stocks can make you rich. Over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2747538, ~/Articles/ArticleHandler.aspx, 10/23/2014 12:01:01 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement